Nightly Business Report - Tuesday April 9 2013

7/28/2019 Nightly Business Report - Tuesday April 9 2013

1/25

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib, brought to by --

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Another record day on

Wall Street. The Dow hitting a new high. The S&P just shy of a new one.


2/25

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Consumerprotection.

What JCPenney shoppers really think of the struggling retailer and what the

new CEO must do to win over more of them?

GHARIB: And Sir Richard Branson, the outspoken CEO of Virgin Group,

talks to us about everything from cheap tickets to the global economy.

MATHISEN: All that and more coming up on NIGHTLY BUSINESS REPORT,

April 9.

GHARIB: Good evening, everyone.

Well, Tyler, more milestones on Wall Street, and not just for the

averages, but for some individual stocks as well.

MATHISEN: Lots of individual companies piercing through all time

highs. Well, the weather warmed up on Wall Street today and so did stocks.

Records aplenty, let`s start with some of those big name companies

that Susie was referring to. All Dow members each touching all time highs

today. Here they are: Disney (NYSE:DIS), Home Depot (NYSE:HD), Travelers,

United Technologies (NYSE:UTX) and Walmart. Those are only the Dow stocks

at all time highs.

Now, those gains did help power the Dow to a new all time closing high


3/25

of 14,673. The S&P nipped above its closing high, too, but it faded late

and finished two points shy of a record close at 1,568. The NASDAQ was up

15.

Stocks got a boost from materials companies on rising demand for

commodities like cooper and oil. Throw in some fresh optimism about

corporate earnings after Alcoa`s report yesterday, then add a dash of some

Fed speak indicating the Central Bank isn`t likely to tighten anytime soon,

and you`ve got a recipe for another day of stock market records.

GHARIB: And our next guest tonight doesn`t see obstacles for stocks

to go even higher.

Jim Paulsen is chief investment strategist at Wells Capital

Management.

You know, Jim, what amazes me is no matter how much bad news we get,

whether it`s a terrible jobs report, threats from North Korea, the European

financial crisis, stocks just keep going up. I mean, what`s driving this

rally and what could derail it?

JIM PAULSEN, WELLS CAPITAL MANAGEMENT: Well, I think a few things,

Susie. I think one thing is we`re, we are desensitizing a little bit, the

investment culture at least, to the idea of the Armageddon story, the end

of world story. We`ve kind of been through that so much in the last few


4/25

years, we`re sort of de-sensing (ph) or reacting less to it when we hear

potential negative things.

I think that`s a healthy development. It kind of is one of the things

you need to sustain a recovery. But I think the big catalyst this year has

been that the growth in the first quarter of the United States has come in

far better than expected. Notwithstanding last Friday`s bad employment

report, growth in the first quarter is probably going to be north of 3

percent for real GDP when coming into the year, most expected only about 2

percent growth and as growth reports come in better than expected, people

have to revise up their forecast, and that optimism right through stock

first.

MATHISEN: Jim, the Dow is already up about, what, 12 percent so far

this year? How do you think it can end in percentage terms?

PAULSEN: Well, I`ve been on record, Tyler, since year end, thinking

that the S&P 500 could touch 1,700 this year. I`m not necessarily

suggesting that`s a year end target. I kind of suspect we might go up

there and come back down a little bit from that by year end. But if it

does reach 1,700, then that might be another 8 percent upside yet this year

that the market could squeak out and that will come about if we continue to

get an economy that comes in better than expected.

GHARIB: Let`s talk a little bit about earnings. Last night, we heard


5/25

from the CEO of Alcoa (NYSE:AA), very upbeat about the global economy.

What do you think we`re going to hear from other CEOs over the next

couple of weeks and how is that going to play into the stock market?

PAULSEN: Well, I think the reports themselves, Susie, that they

report from the first quarter, I think by and large are going to be good

and probably outpace expectations. I find when GDP does better than

expected, then profits do better as expected as well. But I also suspect

that most CEOs are going to have some cautionary comments about the second

quarter and the rest of the year, particularly focusing in on an increasing

impact from sequester and other fiscal tightening forces on their

marketplace.

So I think it`s going to be a mixed bag for the market, as far good

reports in the first quarter, but still caution about the future, and that

could create some volatility at least in the stock market here.

MATHISEN: You know, Jim, I`ve been noting that money is flowing back

into equity mutual funds. That`s often a sign that individual investors

are getting in and, unfortunately, history tells us that they often get in

late.

If I want to believe what you`re telling me, I put more money in. But

let`s say I want to play a bit defensively right now. What would be some


6/25

defensive choices to protect my profits, but maybe leave room for more?

PAULSEN: Yes. I think a lot of that has to do with the mix that

you`d say, maybe rather than going from bonds to stocks, you might want to

look at reducing some of your high -- exposure to high quality bonds and

moving lower quality bonds, rather than making a lift -- all the way to

stocks. If you go into the stock market, you can certainly have a bigger

allocation, Tyler, towards less price volatility and those that offer

higher dividend yields, that higher dividend flow tends to reduce the

volatility, particularly in down markets.

GHARIB: All right. We`ll leave it there. Thank you so much, Jim.

PAULSEN: Thanks.

GHARIB: Jim Paulsen of Wells Capital Management.

MATHISEN: Our other top story, the shake up at JCPenney one day after

the struggle retailer sacked its CEO, replacing him with his predecessor.

The stock nose dived. JCP tumbled 12 percent to its lowest close in a

dozen years.

Courtney Reagan went to Penney`s today to see what customers think and

what the new CEO needs to do to attract more of them.


7/25

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Over the past 14 months, 111-year-old department store JCPenney has been

undergoing a massive transformation, changing its pricing strategy more

than once, changing its merchandise, its marketing, an even the store

layout.

CATHERINE CORRADO-LODI, SHOPPER: Since they started that new price

change that we saw, I was a little apprehensive. But I find that now, they

are marking down and it`s kind of like a stabilize price. That`s pretty

good. Instead of having it marked off, you know, saving $20, you`re always

saving.

REAGAN: On Monday, the visionary behind this transformation, CEO Ron

Johnson, stepped down. Johnson`s predecessor, Mike Ullman, becomes his

successor, stepping back into the top spot as interim CEO. And the CEO

shuffle hasn`t been good for investors. The stock is trading at a 12-year

low.

(on camera): But the shoppers in Elmhurst, New York, seemed

unconcerned. Those that have noticed the changes in store had positive

review, noting in particular the change in prices, selection and quality.

UNIDENTIFIED MALE: The constant low price would be more attractive


8/25

thing. If there`s a huge sale like you said, it gets real hectic and then

kind of like turns me away.

SHIFA JIWANI, SHOPPER: They have different kinds of bags, make up,

jewelry, everything. So, you know, I don`t have to go in different stores.

I can just stop in one place and it`s all there.

REAGAN (voice-over): The big question now becomes whether or not they

can bring back the shoppers it has lost.

For NIGHTLY BUSINESS REPORT, Courtney Reagan, Elmhurst, New York.

(END VIDEOTAPE)

MATHISEN: More now on JCPenney with Margaret Bogenrief. She`s a

principal at ACM Partners.

She thinks ousted CEO Ron Johnson had the right strategy, but just at

the wrong company.

Margaret, welcome.

What do you mean by that?

MARGARET BOGENRIEF, ACM PARTNERS PRINCIPAL: I mean, I think actually


9/25

Johnson was on to something when he was doing this. Within the department

store industry, I mean, you`re seeing significant shrink in terms of

customer loyalty. Customers who returned to brick and mortar and really

customers that are driving to specific department stores.

I think the store within a store concept that he was trying to

innovate at JCPenney was actually where this industry`s going and I

wouldn`t be surprised if you see Nordstrom (NYSE:JWN), Neiman Marcus

(NYSE:MCS), maybe even Macy`s (NYSE:M) push this strategy within the next

16 to 18 months.

MATHISEN: Bloomingdale`s already doing it with some success, I note.

So do you think the new CEO, Mr. Ullman, who was there before, ought

to walk away from what Johnson was trying with the store within a store?

They`re not inexpensive to do.

BOGENRIEF: Right. Well, I think what Johnson with was trying to do

was he was trying to overly innovate 10 percent of the store and ignored

the 90 percent that was left behind. That was really JCPenney`s core base.

If I was walking into this situation as a CEO, obviously, you have to

integrate part of Johnson s plan. I mean, JCPenney has bled more than $2

billion over the last three years. So obviously, there`s been a lot of

money put into this. And obviously, consumers are reacting, like you heard


10/25

in that package, to specific parts of the plan.

You do, however, have to revisit who your traditional customer base

was and try and bring them back in.

MATHISEN: Is there a place, Margaret, today for Penney in a world

with Walmart and Target (NYSE:TGT) and Kohl`s (NYSE:KSS) and Nordstrom

(NYSE:JWN) and a whole host of others? And is Mr. Ullman the right man for

the job at this moment?

BOGENRIEF: Absolutely. So, let s look at a few things. I think one

key thing that`s being lost in all this concern about Johnson`s leaving,

Ullman coming back in, JCPenney is still a multibillion dollar retailer. I

mean, we are talking about a two location boutique.

So, there is obviously a place in this retail environment for

JCPenney. I think it`s a different place and I think like, because I work

in turn around, I like to think about things being relative versus

absolute. Is JCPenney going to be what it was 50, 60 years ago to the

American consumer?

No, but there is a specific type of consumer that will go to JCPenney.

And more specifically, I do think millennials will start to shop there

more. I just don`t think they were going to do it during Johnson`s tenure.


11/25

MATHISEN: It did lose more than a half billion dollars, I believe,

last year. It`s going through a lot of cash. If there`s one thing,

Margaret, that you think Ullman should do immediately, what would it be?

BOGENRIEF: Well, first of all, I would let the media have their fun

with Johnson for the next few weeks. I mean, Ullman really does have to

reset the culture and the strategy at JCPenney. I think I would put a stop

to 90 percent of what`s going on right now, this plan.

You have to work with your suppliers and your vendors. You need to

tighten up cash management. Like you`ve said, $600 million spent in the

last 12 months.

And you really need to stabilize everything. I know that`s the word

everybody is using. But you really have to figure out what you`re spending

money on and what you don`t have to spend on.

MATHISEN: Margaret Bogenrief, principal of ACM Partners, thanks very

much.

BOGENRIEF: Thank you.

GHARIB: And coming up, are cheap fares the secret to Virgin America`s

success? Sir Richard Branson outlined his strategy to take on the

competition.


12/25

But, first, a look at how the international markets closed today.

(MUSIC)

MATHISEN: Shares of First Solar (NASDAQ:FSLR) soar, and that`s where

we begin our "Market Focus" tonight.

The maker of solar panels forecasting 2013 earnings and revenue well

above Wall Street estimates. This as the company expands its power plant

development business. The stock was halted much of the day and when it

opened, it rocketed higher and closed up 45 percent on more than 12 times

the usual volume.

GHARIB: Tech stocks in the spotlight today. Microsoft (NASDAQ:MSFT)

and Intel (NASDAQ:INTC) leading the Dow blue chip. Both stocks have been

underperformers. No surprise given that their link to PCs and world moving

to tablets.

But both stocks jumping more than 3 percent today. Intel

(NASDAQ:INTC) closing at $21.75. Microsoft (NASDAQ:MSFT) at $30 a share.

Both companies report earnings next week.

MATHISEN: The S&P materials sector, the best performer today as China

reported its slowing inflation. Investors see this as potentially bullish


13/25

for commodities as credit restrictions in China might now be allowed to

ease and that could translate into higher demand.

The index was up more than 1 percent materials, and components Cliffs

Natural almost 9 percent higher, Freeport-McMoRan 4 percent up, and

Allegheny Tech up almost 3 percent.

Trades in Herbalife (NYSE:HLF) and Skechers were halted much of the

day. The connection here, they both used the same accounting firm KPMG.

And that giant firm was forced to resign from both companies because of an

insider trading scandal involving a senior partner who allegedly sold

private information on both companies.

Herbalife (NYSE:HLF) shares tumbled 3 1/2 percent to $37, but Skechers

rose 2 1/2 percent to $22.

MATHISEN: And, Susie, Republic Airways (NASDAQ:RJET) Group is in

talks with two investment firms to spin off its subsidiary, frontier

airlines, this according to Dow Jones. Republic bought Frontier in

bankruptcy in 2009 and has been trying for a year or more to find a buyer

for it. Frontier services the West from a Denver hub.

Republic shares were higher today and you can see the spike in the

chart there when Dow Jones ran its report.


14/25

GHARIB: In other airline news today, a new flight pattern for Virgin

America. The upstart airline is now offering flights from Newark to San

Francisco and Los Angeles. It will compete with United Airlines that

dominates the Newark hub.

Now, typically, a round-trip ticket to the West Coast runs around

$1,000, but fares at Virgin America are as low as $360.

When I talked with Virgin Group CEO Richard Branson, I asked him if he

can make money on those cheap tickets.

(BEGIN VIDEOTAPE)

RICHARD BRANSON, VIRGIN GROUP FOUNDER AND CHAIRMAN: We canmake

money. Virgin America attracts people. They love flying. We`re the best

airline in America, as voted yesterday. If we can fill our planes, we can

make money.

GHARIB: So, Sir Richard, are these cheap tickets just for now, a

special launch, or is this going to be the way of business from here on?

BRANSON: We like to offer great value for money for the consumer.

But we also like to offer tremendous quality.

So, anybody traveling with us, at every single seat, they get Wi-Fi.


15/25

They get fantastic entertainment system. They get leather seats in economy

class. They get the delightful cabins, brand new planes and so on.

So, I think, you know, Virgin won`t stop with the best quality

service, but also the best value in fares.

GHARIB: Look, there`s no question that people really do enjoy

traveling on Virgin. It is a high quality experience. But Virgin America

has been losing money over the past couple of years. Can you get enough

people on your planes so you can start making money?

BRANSON: Yes. I mean, the last quarter was very profitable. Next

year will be very profitable. Despite United Airlines dumping capacity on

its -- you know, both back in San Francisco, and coincidentally, just

managing to probably double the amount of frequencies out of Newark on top

of our flight. So, you know, blatantly, anti-competitive behavior.

Because people like to fly Virgin, we will be very profitable this year.

GHARIB: Well, I mean, that is exactly the case. You are now in

markets where you`re competing with United, American, Delta. These are big

guys that provide service to a lot of different cities.

How do you successfully compete against them?

BRANSON: We compete by being much better than them. I mean, United


16/25

were voted the worst airline in America yesterday. We were voted the best.

If you`re the best, people seek out the best.

And we`ve been competing with these carriers in every market since we

started a few years ago. One thing I would say though, the competition

authorities having allowed the carriers to become dominant carriers, they

have got to watch the competitive practices by the big carriers. You need

more carriers to survive and thrive and the big carriers act as

competitively, the Department of Transport and the competition authorities

should do something about it.

GHARIB: Most businesses don`t like regulation. It sounds like you

want more regulation.

BRANSON: We want competition authorities to act as competition

authorities should do. So if every time we set up a new route, suddenly

arrivals, and suddenly find double capacity to put on our route, that needs

to be looked at, I think, by the Department of Transport.

GHARIB: Let me ask you about the global economy. A lot of people are

getting worried that the economy is in trouble. You operate businesses all

around the world. Not just airlines. But it s music, and mobile phones,

financial services.

From the way you look at things, how is the global economy doing? Are


17/25

you worried?

BRANSON: There`s been a slowdown. I think -- I really do think the

corner is turning. And I think businesspeople must help government to turn

that corner and we must be positive.

GHARIB: I`m curious about your -- the Virgin space program and I know

you`ve been running some tests recently. How much longer before you have

takeoff?

BRANSON: It`s very exciting. This is going to be the year for Virgin

Galactic. It was -- a handful of months, we`ll be into space. So, very,

very excited.

GHARIB: Those tickets won`t be cheap, will they?

BRANSON: Not initially.

GHARIB: How much?

BRANSON: Initially, it`s a couple of hundred thousand dollars. But

if you`re willing to wait a few years, I think the pioneers that are being

good enough to help fund it by booking their space into space will enable

us to bring the price down for people, you know, in five, 10 year`s time.


18/25

(END VIDEOTAPE)

MATHISEN: And still ahead, the investment that`s returned more than

200 percent over the past decade. The answer may surprise you.

But, first, a look at how commodities, treasuries and currencies fared

today.

(MUSIC)

MATHISEN: Our tax tip series continues tonight with a look at

important ways to save for retirement. According to a new survey, 82

percent of workers participate in some sort of employer sponsored

retirement plan if one`s available to them, but many may not realize that

they now have two types of 401(k) plans to choose from, a regular and a

Roth.

Sharon Epperson joins us now to explain the ins and outs of these

plans.

So, what is the difference between a Roth and a regular 401(k)?

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Youknow,

Tyler, a lot of folks don`t get this and it`s an important fact that a lot

of financial planners say they`re overlooking if they have this option.


19/25

The way it works is a Roth 401(k) works a lot like a Roth IRA. It allows

you to place after tax dollars into your contributions and then you`re able

to take this money out tax free.

The difference, though, between a Roth 401(k) and a Roth IRA is that

there is no income restriction. That`s the difference is that you are able

to put in this after tax money and then take it out tax free, and that`s

why a lot of people are very attracted to it, particularly younger workers

and people who don`t have, who actually make too much money to contribute

to a Roth IRA.

GHARIB: Is this something you can get no matter where you work? Are

most employers offering this?

EPPERSON: Well, many employers are starting to offer. We have seen

the popularity on the rise. We`re looking at about 37 percent of workplace

retirement plans that now offer the Roth 401(k) option, and that`s

according to Fidelity. Fidelity, of course, is the largest retirement

provider, 401(k) provider, in the country. And we`re also looking at the

fact that in 2009, just four years ago, there were only 22 percent. So

it`s certainly increasing.

MATHISEN: So, there are some new rules also governing Roth. Not only

are they new in many plans, there are new rules that apply to them. What

are they?


20/25

EPPERSON: Well, that`s why it might be more attractive for some

employees and some employers to have this. What is happening with the

American Taxpayer Relief Act was that fiscal cliff deal is new legislation

that says that you don`t have to necessarily take distributions from a

401(k) to be able to convert it to a Roth 401(k). You can now, without

having taken distributions, you can now convert that money. So that means

you don`t have to necessarily be 59 and a half or disabled, and you don`t

have to left the company in order to do this conversion.

So, right now, Fidelity says about 12 percent of those companies that

have the Roth 401(k) option are allowing you to convert.

GHARIB: Should you do it? I mean, should people just do it as like -

-

EPPERSON: That`s the big question. That`s often the big question

with converting to a Roth IRA as well. There are three factors that you

really need to look at. The first is, really, do you need to money right

away? And, then, how much are you going to have to pay in taxes to do the

conversion and where is this money going to come from? You don`t want to

take it out of your retirement assets.

And the final thing you need to look at is where your tax bracket is

going to be in the future. If it s going to be higher, this is something


21/25

that you want to consider. But if it s going to be lower or if you need

the money right away, or if you have to dip into that retirement, principal

to pay the taxes, it`s probably not a good idea.

MATHISEN: How much can I put in? And if I`m 50 and above, how much

more can I put in?

EPPERSON: You can put in $17,500 or $23,000 if you`re 50 or older and

that is per taxpayer. That`s not per plan. So if you decide that you want

to mix it up and have different tax strategy, have a regular 401(k) and a

Roth 401(k), which is a great idea for many people, remember, that

combined, you can only have that $17,500 or $23,000 if you`re 50 or older.

MATHISEN: I`m calling H.R. tomorrow.

EPPERSON: OK.

(LAUGHTER)

MATHISEN: Sharon Epperson, thank you very much.

Our tax tip series is going to continue tomorrow with a look at women

and retirement. How they`re finding new ways to save despite earning less,

living longer and facing higher health care expenses.


22/25

GHARIB: And finally tonight, if you ever had a stamp collection

growing up, you know the satisfaction of gathering and studying old and new

postal stamps from all over the world. But you may have never imagined

cashing in on those rare stamps for millions of dollars, like one well-

known investor did today, or giving all the proceeds to charity.

Robert Frank has more of today`s auction and who`s behind it.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESONDENT (voice-over):Bill

Gross is best known as "The Bond King". But the billionaire bond trader

and founder of PIMCO is also America`s stamp king. And today, he had a

huge trading day in stamps.

UNIDENTIFIED FEMALE: Sold in $650 to bidder 654.

FRANK: Bill Gross sold more than 300 lots from his collection today

at an auction for charity. That is a tiny slice of his collection, which

is far and away the largest and most valuable collection in the U.S.

Today`s sale raised more than $2 million, with some lots selling for more

than twice the original estimate. A few lots sold for more than $60,000

each.

CHARLES SHREVE, SIEGEL AUCTION GALLERIES DIRECTOR: This sale


23/25

certainly attracted a lot of attention because a lot of this material

hasn`t been on the market in literally decades and it also helps that Mr.

Gross is giving the proceeds to charity.

FRANK: Stamps may not be as flashy as cars or art. But as a

collectible, they have been great investments. Stamps returning more than

200 percent over 10 years. Better than art, wine and even stocks. But it

takes expertise to buy the right stamps at the right price.

SHREVE: Quality and rarity are the two things that you want, when you

get both together. They`re not inexpensive, but that`s what somebody

wants, 10 years from now, 20 years from now.

FRANK: Provenance also plays a role. Since Bill Gross is considered

one of the smartest collectors, his sales tend to generate high prices.

(on camera): Many of the stamps that Bill Gross is selling today were

the first stamps ever issued by the U.S. Postal Service. These are the 5-

cent Franklin stamps and 10-cent Washington stamps. There was one stamp

that was postmarked from Canada, a 10-cent Washington stamp, that could

fetch more than $30,000. That`s just for one stamp.

(voice-over): Bill and Sue Gross will donate all the proceeds from

the sale to Doctors Without Borders and millennial villages. That would

make Bill Gross the nation`s top philatelist philanthropist.


24/25

For NIGHTLY BUSINESS REPORT, Robert Frank, New York.

(END VIDEOTAPE)

GHARIB: Well, they are beautiful to look at. His mother got him

started in all of this, the stamp collecting. None of her stamps were

really worth that much.

MATHISEN: Right.

GHARIB: I feel so guilty, Tyler, because my son was collecting stamps

and I tossed them out with the baseball cards at one point.

MATHISEN: I guess it proves that Bill Gross, a guy who has an eye for

value, it translates from bonds where he`s been so successful, to having an

eye for value.

GHARIB: The gifted investor.

MATHISEN: Yes, terrific investor and a good guy to boot.

GHARIB: Well, that s NIGHTLY BUSINESS REPORT for tonight. Thanks so

much for watching. I`m Susie Gharib.


25/25

MATHISEN: And I m Tyler Mathisen. Thanks for joining us. Have a

great evening and we hope to see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post

broadcast at http://nbr.com. The program is transcribed by CQRC

Transcriptions, LLC. Updates may be posted at a later date. The views of

our guests and commentators are their own and do not necessarily represent

the views of Nightly Business Report, or CNBC, Inc. Information presented

on Nightly Business Report is not and should not be considered as

investment advice. (c) 2013 CNBC, Inc.

Documents

Nightly Business Report - Tuesday April 9 2013